End of Natural Gas Surplus Will Not End Market Restructuring / Financially-Healthy Pipelines Needed to Compete in Market, Says Dixon

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People who believe the end of the natural gas surplus also will be the end of restructuring in the natural gas market are wrong, according to a report by Richard Dixon, group vice president of Panhandle Eastern Pipe Line Co. of Houston.

There will continue to be problems with excess capacity, Dixon told an Oklahoma Senate committee. Consumption of natural gas in the United States fell 9.8 percent from 18.3 trillion cubic feet in 1982 to 16.5 trillion cubic feet in 1986, he said.

Dixon's testimony was given Friday during the fourth meeting of the senate select committee on natural gas trade practices, which has solicited comments concerning the current situation in the natural gas industry from natural gas producers, utilities and pipelines.

Oklahoma is going to need financially-healthy pipelines to transport natural gas produced within the state in order for that fuel to compete against production from other areas of the country, and with Canada, Dixon said.

"There's only so much baggage a pipeline can keep from the past and continue to operate against pipelines with no baggage," he said.

In the past three to four years, the Federal Energy Regulatory Commission has tried to reform and restructure the natural gas industry.

The long run effects are hard to see, but Dixon said the short term effects, at least while there is a natural gas surplus or "bubble," are clear:

"Natural gas transported to the city gate, or to the end user, will be at reduced prices."

Those prices are so low that they do not support exploration and drilling for continued supplies of natural gas to those customers, Dixon said.

Natural gas reserves are being depleted, while the search for new reserves has slacked off, he said.

The actions of FERC have been taken with little informed consideration of their effects on the industry's ability to supply today's consumer, Dixon said. Future consumers will see high-priced natural gas supplies, he said.

Panhandle has two types of contracts, a sole-supplier contract and a partial requirement contract, to supply natural gas to people in Michigan, Indiana, Illinois and Missouri, Dixon explained.

The sole-supplier contract, making up 70 percent of Panhandle's business, required customers to buy all the natural gas they needed from Panhandle, he said.

Under the other contract, the customer received natural gas from several pipelines, and was required to buy 75 percent of the contracted volumes, or pay a minimum bill. …